Teens, early college years are prime time for parents to safely hone kids' financial literacy

Your teenage kids may be old enough to get a part-time job and start taking college prep exams, but do they know how to manage their money?

Parents can get their teens started on the road to financial literacy by taking advantage of ways to teach them concepts like making a budget, balancing a checking account, using credit wisely or saving for retirement.

That's because parents can have the biggest influence on their children's behavior when it comes to personal finance, says Patricia Seaman, senior director of the National Endowment for Financial Education, a nonprofit focused on financial literacy.

"Even if you don't feel like you know enough or feel you were raised in a money savvy environment, you still can overcome that and give your kids a good foundation," Seaman says.

Here are six ways to instill your teens with money management skills for college and beyond:

1. COVER THE BASICS EARLY

Personal finance education should ideally begin when children are in elementary school. This is a good time to establish an allowance, say for doing chores around the house.

One strategy is to get kids to regularly save some of their allowance, and donate another portion to church or a charity of the child's choosing.

When a child is between 5 and 10 years old, it's an ideal time to set them up with a child savings account. That can help children begin to learn the value of saving and compounding interest — even if the small return might not generate much excitement for young kids.

Many banks offer savings and checking accounts tailored for young children as well as teens. Capital One Financial's Kids Savings Account currently offers a 0.75 percent variable annual percentage yield with no fees or minimum balance. And Wells Fargo's Teen Checking account lets parents set daily limits on debit card purchases and ATM withdrawals.

2. GIVE TEENS SOME FINANCIAL RESPONSIBILITIES

It's important to hold teenagers accountable for their financial choices. This could take several forms, like requiring them to pay for their own monthly mobile phone subscription or the online account on their video game console. Money management lessons can be found by giving teenagers a clothing allowance and letting them buy their school clothes on their own.

And even if they elect not to spend wisely and end up with, say, one pair of fancy jeans and not enough socks or underwear, that's OK.

"You want them to go ahead and make small mistakes with not very much money while the stakes are still fairly low," Seaman says. "If it is something absolutely critical, you could make the decision to bail them out."

In this spirit, parents might also consider giving teens an ATM card to access an account with a limited balance and no overdraft protection. Another option is a prepaid Visa or MasterCard with a set limit.

3. CONSIDER A TEEN RETIREMENT ACCOUNT

Your kids will likely have to rely on their savings and investments to help cover expenses when they retire.

That may seem like a distant concern, but youth is an advantage when it comes to maximizing returns in a retirement account. And, having them invest some of their earnings for their golden years now will help make it a habit for years to come.

Once a teen lands a job — an allowance won't do — open a Roth IRA, or individual retirement account. A Roth IRA allows accountholders to contribute a portion of their paycheck after taxes. That means that when it comes to time to withdraw the funds, they can do so tax-free.

Seaman recommends teens set aside a minimum of 15 percent of their paycheck toward their retirement account. And that parents use the opportunity to teach their kids about the stock market, risk and return, and how as teens they have a long timeline ahead that will allow them to recover from setbacks.

4. MANAGE EARLY CREDIT USE

Managing credit card debt and spending can be a major problem for many borrowers, but especially young cardholders.

Kids under 18 are not allowed to open a credit card account on their own, though use of prepaid cards in high school can help establish good spending habits.

Parents with kids going away to college may want to add the student to their card to cover books or emergency expenses. But a shared card account also can help parents keep tabs on their kids' spending and payment habits.

"It will give you a road map for how to transition them from those constraints to the more open access they will have when they're adults and making their own money," Seaman says.

5. MAKE CAR BUYING A LESSON

How to turn buying a car for your teen into a money management lesson? Rather than handing them the keys to a car on their 16th birthday, get teens involved doing all the homework that goes into a car purchase.

Ask them to compare different models according to features like price, projected maintenance costs and mileage. And have them call insurers to find out how much coverage will cost.

Once they have a better idea of the real costs involved, use that to set their expectations.

6. GET TEENS INVOLVED IN HOUSEHOLD FINANCES

Another way to get teens on track to manage their finances as adults is to give them a closer view of household financial decisions.

Walk them through the monthly bills and let them see how much is spent to keep the heat and the cable TV on, as well as funding retirement accounts and debt payments.

To help frame the money management conversation, the National Endowment for Financial Education has a booklet that can be downloaded for free at www.hsfpp.org .

And for teens nearing graduation or headed for college, check out www.cashcourse.org/prep . The site, also run by NEFE, explains a bevy of financial issues, from budgeting and financial planning, to setting financial goals and planning for retirement.